Advanta 11% Yield Investment Notes – Going, Going, Gone!

by Darwin on November 25, 2009

Advanta had been plastering their ads for high yield investment notes paying as high as 11% throughout my local paper and elsewhere for the past several months and I’d decided to investigate a bit further.  Given the low interest rate environment we’re in and my presumption that any company offering such a premium over market rates must be in severe distress, I wasn’t surprised to find concerns with their financial solvency both upon my own independent analysis and via analyst statements.  Not once, but three times over the past several months, I highlighted the risks associated with purchasing these investment notes given the complete disconnection from reality with regard to risk vs. reward:

  • Declining Share Price – sub $1
  • Long Term Lock-in period paired with VERY heavy advertising
  • Obvious solvency risk
  • Paying Well Above Market Rate
  • Not FDIC Insured

How’s an 11% Gain on a 100% Loss Sound?

The Warnings were There:

April 8, 2009 – Advanta High Yield Notes: 8.5% – 11% Yield Worth the Risk?

May 13, 2009 – Advanta Freezes Credit Cards – High Yield Notes in Jeopardy?

June 18, 2009 – Structured Notes: Products Deliver Guaranteed Returns in any Market


Well, earlier this month, Advanta filed for Chapter 11 Bankruptcy.  While it’s not clear whether investors in these high priced, high yielding, highly restricted investment notes will ever see their money back, what is clear is that the warning signs were there and the company’s practices of heavily advertising these instruments seems questionable to put it nicely.  With a front page Google Search ranking for “Advanta Investment Notes”, I’d like to think that at least a few people were spared the significant losses, heartache and hassle associated with the bankruptcy filing, but surely, since their advertising was so robust, many people are now going to be looking for their share from the proceedings.

Lessons Learned?

If it’s too good to be true, it probably is.  While this is the exact opposite of what I said about a niche government program offering 0% down loans and good terms under the USDA Rural Loan Program, I can’t think of any other instances where there’s a distinct difference from the general market that doesn’t have a catch.

If It’s High Yield You Seek…

Check out some of these resources which offer similarly high yields, but alas, are not without risk:

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Weekend reading: Countryside retreat
January 30, 2010 at 2:49 pm

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